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Cite as: [2002] ScotCS 346, 2003 SCLR 85

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Dow v. Sweeney [2002] ScotCS 346 (09 December 2003)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Marnoch

Lord Hamilton

Lord Cameron of Lochbroom

A1642/01

OPINION OF THE COURT

delivered by LORD HAMILTON

RECLAIMING MOTION

in the cause

SUSAN DOW or SWEENEY

Pursuer and Reclaimer;

against

PATRICK CORNELIUS SWEENEY

Defender and Respondent:

_______

Act: Wise, Cheyne; Digby Brown, S.S.C. (for HBM Sayers, Solicitors, Glasgow) (Pursuer and Reclaimer)

Alt: Macnair, Q.C., Loudon; Brodies, W.S. (Defender and Respondent)

9 December 2003

The background
[1] The parties to this action of divorce were married in Scotland on 23 October 1981. They ceased to cohabit on 20 December 1998. On 15 October 2002 the Lord Ordinary, having heard proof at an earlier diet, granted decree of divorce. He also made an order for payment by the defender ("the husband") to the pursuer ("the wife") of a capital sum of £774,784, of which £350,000 was to be paid immediately and the balance on a date or dates to be afterwards fixed, and of a periodical allowance of £4,000 per month for the period of one year from the date of decree.

[2] In determining the amount to be ordered to be paid by way of a capital sum, the Lord Ordinary took the view that the value of the share portfolio held by the husband on 20 December 1998 ("the relevant date" within the meaning of section 10 of the Family Law (Scotland) Act 1985) should be assessed net of such capital gains tax as would have been exigible from the husband in the event of a realisation by him of those shares on that date. He adopted a like approach in relation to the assessment of the value as at that date of the husband's interest in certain businesses (a partnership and three limited companies) carried on by him, and in which he had in effect the sole proprietorial interest, at that time. The wife has reclaimed against the Lord Ordinary's interlocutor and contends that that approach was erroneous in law.

[3] The husband also seeks to bring the Lord Ordinary's interlocutor under review. His grounds of appeal, as lodged, put in issue (1) the reasonableness of the order that the first instalment of the capital sum be in the sum of £350,000, (2) whether the Lord Ordinary erred in awarding a periodical allowance at all and, if so, for as long as one year and (3) whether, in any event, the amount awarded as a periodical allowance was excessive. At the opening of the reclaiming motion Mr McNair, on the husband's behalf, intimated that the first of these grounds of appeal was not to be insisted in. It, however, became clear in the course of the hearing that, in the event of the court being in the wife's favour on her contention that the Lord Ordinary's approach to valuation was erroneous, the husband would seek to argue that, on an alternative basis or bases, the amount of the capital sum should be modified. A contention under reference to at least one of these bases had been advanced before the Lord Ordinary but, as a result of the approach which he had adopted to valuation and the amount which that approach had brought out, it was unnecessary for him to deal with it in detail. In the event, however, of the Lord Ordinary's approach to valuation being held to be erroneous, other bases for modification would become live issues.

[4] As the hearing of the reclaiming motion progressed it became evident that the whole issues potentially arising could not be argued in the time allotted. With the agreement of parties, the discussion was restricted to the issue of the proper approach to valuation, with particular reference to the incidence of capital gains tax in the event of a realisation of the property on the relevant date.

The statutory provisions
[5] Section 8(1) of the Family Law (Scotland) Act 1985 (as amended) provides that in an action of divorce either party to the marriage may apply to the court for one or more of certain orders; these orders include an order for the payment of a capital sum to the applicant by the other party to the marriage and an order for transfer of property to the applicant by that other party. Section 8(2) provides that where such an application has been made

"the court shall make such order, if any, as is -

(a) justified by the principles set out in section 9 of this Act; and

(b) reasonable having regard to the resources of the parties."

Section 9 sets out certain principles which the court is obliged to apply in deciding what order for financial provision, if any, to make. These include that

"(a) the net value of the matrimonial property should be shared fairly between the parties to the marriage."

[6] Section 10 provides:

"(1) In applying the principles set out in section 9(1)(a) of this Act, the net value of the matrimonial property shall be taken to be shared fairly between the parties to the marriage when it is shared equally or in such other proportions as are justified by special circumstances.

(2) The net value of the matrimonial property shall be the value of the property at the relevant date after deduction of any debts incurred by the parties or either of them -

(a) before the marriage so far as they relate to the matrimonial property, and

(b) during the marriage,

which are outstanding at that date."

Section 10(3) defines "the relevant date", which in the present case is 20 December 1998, the date when the parties ceased to cohabit. Section 10(4) defines "the matrimonial property" as meaning -

"all the property belonging to the parties or either of them at the relevant date which was acquired by them or either of them (otherwise than by way of gift or succession from a third party) -

(a) before the marriage for use by them as a family home or as furniture or plenishings for such home; or

(b) during the marriage but before the relevant date."

Section 10(6) provides:

"In subsection (1) above 'special circumstances', without prejudice to the generality of the words, may include -

(a) the terms of any agreement between the parties on the ownership or division of any of the matrimonial property;

(b) the source of the funds or assets used to acquire any of the matrimonial property where those funds or assets were not derived from the income or efforts of the parties during the marriage;

(d) the nature of the matrimonial property, the use made of it (including use for business purposes or as a matrimonial home) and the extent to which it is reasonable to expect it to be realised or divided or used as security;

(e) the actual or prospective liability for any expenses of valuation or transfer of property in connection with the divorce."

The submissions of parties
[7] Miss Wise, junior counsel for the wife, submitted that the Lord Ordinary had erred in his assessment of the capital sum to be paid to the wife by the husband in bringing into account by way of deduction sums in respect of capital gains tax. That error had affected two figures, namely, that for the value of the husband's share portfolio at the relevant date and that for the husband's interest at that date in the businesses. The Lord Ordinary had, having regard to section 10(1), taken the view that the former should be shared equally and the latter in the proportions of 48% to the wife and 52% to the husband; no quarrel was taken with these apportionments. Miss Wise submitted (1) that capital gains tax could for present purposes properly be deducted only if liability to that tax had already arisen by the relevant date, (2) that, while for many assets a hypothetical sale could be an appropriate way of identifying market value, the "value" of such assets was the price which they might have achieved on sale, not the financial result to the seller of so disposing of them, (3) that the "value" of an asset was its "objective" value unrelated to the position of the particular holder of it, (4) that the legislation made provision for three stages, namely, (i) valuation, (ii) division and (iii) consideration of the resources of parties, at the last two of which, but not at the first, issues of fairness and reasonableness might arise and (5) that the disposal of an item of matrimonial property subsequent to the relevant date and any tax consequences of such disposal were matters for stages (ii) and/or (iii), not stage (i). The Lord Ordinary's approach had involved his construing "value" where it second appeared in section 10(2) as value to the parties or either of them, such value in the case of marketable assets being taken to be their value after deduction of such capital gains tax as would have been exigible from the disposing party on realisation at that time. That was a misconstruction. It failed to take into account that the property might never in fact be realised or that, if it were, capital gains tax might not be payable at all or its amount be significantly less than that calculated by reference to a notional disposal on the relevant date. There had been conflicting authority in the Outer House. In Latter v Latter 1990 S.L.T. 805 Lord Marnoch had declined to deduct capital gains tax. In McConnell v McConnell 1997 Fam.L.R. 97 Lord Osborne had taken the same approach; although his interlocutor had been reclaimed, the valuation issue which arose in the present case had not been pressed to a decision in the Inner House (McConnell v McConnell (No.2) 1997 Fam.L.R. 108). In Bolton v Bolton (17 February 1995, unreported) Lord Abernethy, in a case where the defender was a party litigant, had deducted capital gains tax. In Savage v Savage 1997 Fam.L.R. 132 Lord Sutherland had, in discussing evidence led concerning a valuation of property, referred to "a capital gains tax liability" and to the use of a net figure to take account of it; but that had been in the context of an asset valuation of a business and was not directly in point. In none of these cases had there been any analysis of the statutory provisions. In Coyle v Coyle (25 April 2003, unreported) Lady Smith had analysed the matter fully and concluded that any potential liability of a party to capital gains tax on realisation of matrimonial property at the relevant date should not be taken into account at the valuation stage, though an actual or prospective tax liability on realisation might require to be taken into account at the later stage when the court was considering, under section 8(2)(b), what order was reasonable having regard to the resources of the parties. That approach was to be preferred. An analogous question had arisen in the sheriff court in relation to the valuation of a dwellinghouse where a penalty or clawback was exigible in the event of the dwellinghouse being sold within a stipulated period and the relevant date had fallen within that period. The approach to valuation adopted by Sheriff Principal Ireland in Mackin v Mackin 1991 S.L.T. (Sh.Ct.) 22 and by Sheriff Principal Nicholson in Lawson v Lawson 1996 S.L.T. (Sh.Ct.) 83 was erroneous. A contingent liability should not have been taken into account for the purpose of assessing value at the relevant date, though the existence of any liability, current or contingent, at the time when decree was pronounced might bear on the issue of the resources of the parties. The contrary view taken by Sheriff Principal McInnes in Stuart v Stuart 2001 S.L.T. (Sh.Ct.) 20 was correct. The Lord Ordinary had taken some comfort from the position under English law. But the English legislation, under the Matrimonial Causes Act 1973 (as amended), had no equivalent to a valuation at the date when the parties ceased to cohabit; it was concerned with valuation of property at the time of divorce. Moreover, it was plain that under English law there was no hard and fast rule about the deduction of capital gains tax (White v White [2001] 1 AC 596 per Lord Nicholls of Birkenhead at p.612). In relation to the incidence of capital gains tax on a transfer between spouses the legislative provision was that the "no gain/no loss" treatment applied only in a year of assessment during at least part of which they had lived together (Taxation of Chargeable Gains Act 1992, section 58). The Revenue had, however, following the English decision in G v G (Financial Provision: Equal Division) [2002] E.W.H.C. 1339 (Fam.), [2002] 2 F.L.R. 1143, changed its practice in relation to hold-over relief on the transfer of business assets between spouses. As regards pension rights (which might constitute matrimonial property), prior to 1996 these had been valued on the basis of actuarial evidence, no allowance being made for any tax which would be paid on the pension upon its payment (Bannon v Bannon 1993 S.L.T. 999, per Lord Cameron of Lochbroom at p.1002K-L). Regulations had since been made, under section 10(8) of the 1985 Act, on that matter (initially the Divorce etc. (Pensions) (Scotland) Regulations 1996) by which the value of pension benefits was now calculated by reference to a formula. Miss Wise also referred to Little v Little 1990 S.L.T. 785 and to Wallis v Wallis 1993 SC (HL) 49.

[8] Miss Loudon, junior counsel for the husband, submitted that the Lord Ordinary's approach to the treatment of capital gains tax had been correct. He had rightly recognised that the purpose of the 1985 Act was to secure a fair division of the wealth acquired in the course of the marriage as a result of the efforts of the parties during it. The idea behind the principle of fair sharing of the value of matrimonial property was "that there should be a sort of deferred community of acquests" (Clive on Husband and Wife para.24.020). A similar view of the underlying objective of the legislation had been expressed by Lord Marnoch in Latter v Latter at pps.808L-809A and by Lord Osborne in Whittome v Whittome (No.1) 1994 S.L.T. 114 at p.126C-D. It was accepted that any capital gains tax prospectively exigible on a disposal was not a debt which was "outstanding at the [relevant] date" within the meaning of section 10(2). But such tax required to be taken into account in assessing "the value of the [matrimonial] property" under that subsection. "Value" was not defined in the legislation nor, except in relation to pensions, was any mode of valuation prescribed; but having regard to the legislative objective (fair sharing by a redistribution of wealth between the parties to the marriage) value had to be related to the position of the holder of the property for the time being. An "objective" approach to value, which related it solely to the price which a third party would pay for it, was inappropriate. It was accordingly right to approach the valuation of shares and other property on the basis of a notional sale of them at the relevant date and to take into account the consequences, including the tax consequences, to the hypothetical seller on the occurrence of such a sale at that date. Only thus was there an appropriate degree of reality in the exercise. A reduction of the whole matrimonial property to cash at that date was to be assumed. Although the calculation of the capital gains tax which would be exigible on such a hypothetical sale might be difficult, it was an exercise which could be carried out with the assistance of appropriate accounting and taxation experts. It was accepted that the taxation implications would require to be addressed in every case. But, if the wife was correct that taxation came into account only at a later stage (such as on consideration of the resources of the parties), a similar valuation exercise would require to be carried out again as at the later date. Mackin v Mackin and Lawson v Lawson had been rightly decided. In Stuart v Stuart the Sheriff Principal had not addressed the question of "value", only whether or not there was a debt outstanding. There were difficulties in dealing, as the wife had suggested, with taxation implications at the later stages (ii) and (iii). That would, as earlier submitted, involve the expense and complication of repeated valuations, a situation which should be avoided (Wallis v Wallis 1992 S.C. 455, per Lord President Hope at p.460). The scope of "special circumstances" in section 10(6) was not unlimited; it had been held that an increase in the value of property between the relevant date and the time of proof was not itself a special circumstance (Wallis v Wallis 1993 SC (HL) 49, especially per Lord Keith of Kinkel at p.55). The use of section 8(2)(b) to cope with such an increase had also in that judgment been ruled out. Reference was also made to the report of the Inner House decision in 1992 S.C. at pps.460-1. The property which was held by the parties at the time of proof might also be different from that held at the relevant date. Counsel also noted that in the proof in this case Mr McMorrow, the accountancy expert instructed by the husband but in the event led in evidence by the wife, had, in making an asset based valuation of one of the defender's businesses, taken into account the tax which would arise on the disposal of property. Although the English legislation was different, consideration of the practice in that jurisdiction was instructive. Reference was made to Rayden & Jackson - Law & Practice of Divorce and Family Matters (17^th ed.) para.21-35, O'D v O'D [1976] Fam.83, G v G (Financial Provisions: Equal Division) and Parra v Parra [2002] E.W.C.A. Civ.1886, [2003] 1 FLR 942.

[9] Mr Cheyne, senior counsel for the wife, adopted his junior's submissions. He further submitted that, on a proper analysis, the decision of the House of Lords in Wallis v Wallis could not be seen as restricting "special circumstances" in section 10(6) to the circumstances existing at the relevant date. Indeed the terms of section 10(6), particularly sub-paragraphs (c) and (e), necessarily looked at a future time beyond the relevant date; the particular special circumstances listed were also stated to be without prejudice to the generality of that expression. Accordingly, although the value (in an objective sense) of the matrimonial property fell to be assessed at the relevant date, the impact of any taxation which had been incurred on a realisation between then and the time of proof (or which was then expected to be incurred to satisfy an award) could be taken into account as a special circumstance. Moreover, section 8(2)(b), which conferred a discretion on the judge making the order, was available in appropriate circumstances to provide redress. Stages (ii) and (iii) could be addressed at the same time. Decisions in English cases were, having regard to the different legislative background, of no assistance in the proper approach to the 1985 Act. The Lord Ordinary had erred in rejecting the wife's submission to him that the incidence of capital gains tax went to the matter of resources of the parties, not to valuation. He had also erred in presupposing that a division of matrimonial property involved a realisation of it in cash. While, for the purpose of making a valuation of the shares of a company on an assets or break-up basis, it might be appropriate to take into account any tax which the company might incur on the realisation of its property, that did not warrant taking into account by way of deduction capital gains tax, which hypothetically a party to the marriage might be liable to pay following upon a notional sale as at the relevant date.

[10] Mr McNair, senior counsel for the husband, also adopted his junior's submissions. The 1985 Act was silent as to the meaning of "value" and in particular as to whether or not the incidence of capital gains tax should be brought into account in assessing it. The practical realities, however, should be considered. The Act was concerned with the fair sharing of property in the context of a family relationship where the personal nature of the wealth was important to the underlying concept. In Little v Little the practical result had been emphasised. To look at the value of matrimonial property in isolation from its worth to the particular party to the marriage who owned it could give rise to injustice and was not consistent with the purposes of the Act. The value of a minority shareholding could be very different from that of a majority shareholding. Where there was an in-built tax liability, fair sharing should not depend on whether the owner intended to sell it in early course (and so incur the tax liability) or retain it (and so far, and in the meantime, incur no such liability); nor should it depend on whether or not it was necessary to realise it to satisfy an order for payment of a capital sum. The only way in which an exactitude could be achieved was by (hypothetically) reducing the whole matrimonial property to cash, as had been the approach in England since White v White - albeit by reference to a different date. It was wrong in principle to regard as of equal value a share portfolio with an in-built capital gains tax liability and funds held in a building society account with no such liability. The prospective liability to tax had correctly been taken into account in assessing the value on an assets basis of the defender's interests in one of his businesses. A similar approach had been adopted in Savage v Savage. In Wallis v Wallis the argument in the Inner House based on "special circumstances" had been very much a secondary position; in the House of Lords it had not been argued, although section 10(6) had been referred to in Lord Keith's speech. There were practical and logical problems in invoking section 8(2)(b) where the taking of capital gains tax into account at that stage depended on whether or not the owner had an intention or a need to sell the property. A calculation using "objective" values might be done on the basis of a need to sell the property (with the consequent incurring of capital gains tax) and a figure for a capital sum then arrived at, but it then become clear that a capital sum of that figure could be satisfied without the need to sell the property. The concept of "value of property" did not always import its value in an objective sense; its meaning depended on the statutory context.

Discussion
[11] Where, as here, a party to a marriage seeks in an action for divorce an order for payment of a capital sum, the court is required to make such order, if any, as is (a) justified by the principles set out in section 9 of the Act and (b) is reasonable having regard to the resources of the parties (section 8(2)). Section 27(1) defines resources as meaning present and foreseeable resources. For present purposes the only principle in section 9 which is relevant is that which enjoins that the net value of the matrimonial property should be shared fairly. "Matrimonial property" is defined by section 10(4), as read with section 10(5,) as all the property belonging to the parties or either of them at the relevant date which has certain characteristics. The relevant date is commonly, but not always, the date on which the parties ceased to cohabit. In accordance with the policy of the Act the relevant date is defined and the characteristics of matrimonial property specified with the objective that what should be shared is what has been acquired by the spouses' efforts or income during the effective period of marriage. (Latter v Latter at pps.808L-809A, Whittome v Whittome (No.1) at p.126C-D; see also the Scottish Law Commission Report on Aliment and Financial Provision (Cmnd. No.67) at para.3.69).

[12] In the course of the proceedings in this case the parties reached agreement on the items of property which in aggregate comprised the matrimonial property. These items were, amongst other property, heritable subjects, pensions, shares, bank and building society accounts and business interests. As at the relevant date some of these items were owned by the wife and others by the husband. The value of some of them (for example, bank and building society accounts) was immediately ascertainable. The value of pension rights was, for the purposes of the Act, determined by reference to a formula. The value of other items (such as shares and the business interests) was ascertainable by the use of stock-market information and professional valuation. In the event the parties to this action helpfully agreed the values to be attributed to most of the items of matrimonial property at the relevant date. They were in dispute as to the value of the business interests but that dispute was resolved by the Lord Ordinary and his decision on that matter is not challenged. There remained and remains, however, an outstanding issue concerning the treatment of capital gains tax which would (hypothetically) have been incurred by the husband had he, for value, on the relevant date disposed of the shareholdings in his share portfolio and the shares (or other proprietorial interest) held by him in his various businesses. No evidence was, in the event, led nor argument presented in relation to any capital gains tax which would (hypothetically) have been incurred by the wife had she for value at the same date disposed of the shareholdings in her share portfolio.

[13] Tax was at the relevant date, and remains, chargeable in respect of chargeable gains computed in accordance with the Taxation of Chargeable Gains Act 1992 (as amended) and accruing to a person on the disposal of assets (section 1(1)). Broadly speaking, an individual is, subject to a residence requirement, chargeable to capital gains tax in respect of chargeable gains accruing to him in a year of assessment; the tax is chargeable on the total amount of chargeable gains accruing to the chargeable person in that year after deducting allowable losses accruing to him in that or earlier years (section 2(1) and (2)). Statutory exemptions and reliefs may apply. These include the exemption for disposal between spouses in any year of assessment during which (or part of which) they are living together (section 58) and "hold-over" relief on gifts of business assets (section 165). The practical impact of the statutory provisions may, to some extent, be affected by Revenue practice.

[14] Section 10(2) of the 1985 Act provides that the net value of the matrimonial property shall be the value of the property at the relevant date after deduction of certain debts of the parties or either of them which are outstanding at that date. It is, rightly, conceded on behalf of the husband that any hypothetical liability of his to capital gains tax arising on the assumption that he had disposed of matrimonial property on that date does not fall to be deducted as being an outstanding debt. No "netting" provision in respect of matrimonial property other than for outstanding debts is expressly made in the statute. The husband's contention is, however, that in ascertaining "the value of the property" as at the relevant rate it is necessary to take into account by way of deduction any capital gains tax which hypothetically would have been incurred by him on the assumed disposal - which, as we understood the contention, would be of the whole of his property (in so far as matrimonial property) - provided at least that such disposal was for value. As the Lord Ordinary put it in discussing the value of the husband's businesses at the relevant date, the assumption to be made is that such property "was sold for cash at that date".

[15] In our view the husband's contention is unsound. As a matter of ordinary language "the value" of [any] property which is realisable for money is the price which a hypothetical willing purchaser would pay, and the hypothetically willing seller receive from him, for that property on a hypothetical sale at the date in question. It is not constituted by that price less any costs (including any liability to tax) which the hypothetical seller would incur in the event of such a sale. The circumstance that section 10 makes provision for a "net value" of matrimonial property by deducting outstanding debts but makes no equivalent provision for the deduction of hypothetical liabilities tends to confirm that that ordinary usage is being employed. It is appropriate to bear in mind that one of the principles identified in section 9(1) is that the net value of matrimonial property should be shared fairly. But that consideration should not be seen in isolation but in the context of the ultimate purpose of the legislation being that any order for payment of a capital sum should meet two criteria, one being that it is justified by the section 9 principles, the other being that it is reasonable having regard to the resources of the parties (at the time when the order for payment is ultimately made). That time will necessarily be after, and commonly long after, the relevant date, as at which the value of the matrimonial property is to be determined. The fact that the scope of the property, the value of which is to be shared, is identified - in accordance with the statutory objective - as at the relevant date does not of itself entail that, to achieve fair sharing or the ultimate making of an award in accordance with the statutory criteria, it is necessary to suppose (contrary to the fact) that that property has been realised for cash as at that date. That is particularly so where there are other stages at which the actual or foreseeable incidence of tax and other liabilities or costs upon any realisation or other disposal can be brought into account.

[16] In Coyle v Coyle at para.[19] Lady Smith, in discussing the proposition that for the purposes of calculating the value of the matrimonial property its market value should be reduced by the hypothetical incidence of capital gains tax, observed:

"Such an approach has, as Lord Marnoch said in Latter, no foundation in reality, it fails to take account of the fact that the asset might never be realised by the spouse who owns it, it fails to take account of the fact that even if the spouse does have to realise it, he or she will not have to pay the capital gains tax charge immediately, indeed, there may be scope for making a profit by investment of the proceeds of the asset before the tax has to be paid, and it fails to take account of the fact that whilst the owner of an asset might regard its value as its value after capital gains tax is paid [although that seems to be an odd way to express value], the recipient of the asset if it is transferred will regard its value as being its full value without taking account of tax. In short, I see no reason for depriving the word 'value' of its usual and ordinary meaning when assessing the value of matrimonial property. It would not be usual to refer to the 'value' of a house or any other investment as being its market value less whatever is anticipated will be the impact of selling it on a person's ultimate liability to the Inland Revenue in a particular tax year, whether in respect of capital gains, inheritance, or any other tax."

With these observations we agree.

[17] Where her Ladyship refers to liability for tax she is, of course, referring to liability of the spouse (or former spouse) for tax. There may be other situations in which it is proper, in assessing the value of an asset, to bring into account the impact of taxation or of other costs or liabilities. An example is where the shares of a company are being valued on a break-up valuation. It is inherent in such a valuation that the hypothetical purchaser of the shares would offer a price based on the assumption that the assets of the company would require to be realised and that any costs, including any corporation tax liability on a chargeable gain which would be incurred by the company in such an exercise, would require to be met. Thus in Latter v Latter, in a valuation of the defender's shareholding on the basis that the company would be liquidated, the costs of realisation were properly brought into account (p.809F) but the notional capital gains tax which the defender personally would incur on such realisation was properly not deducted (p.809G-H). In Savage v Savage reference is made at p.134 to evidence led about the valuation on an asset basis of a business which appears to have been carried out by a partnership of which the defender was a partner; a notional capital gains tax liability appears to have been deducted in arriving at the value. It is doubtful whether that deduction was appropriate. However, as we were not in this case addressed on the tax position of partnerships (in particular where several parties have effective proprietorial interests therein), we reserve our view on the appropriateness for the purposes of valuing matrimonial property of the making of such a deduction.

[18] We do not find the approach adopted in England, where the statutory provisions are quite different, to be of assistance in the construction and application of the Scottish legislation.

[19] In the result we approve the approach to notional capital gains tax adopted in Latter v Latter, in McConnell v McConnell and in Coyle v Coyle; we disapprove that adopted in Bolton v Bolton and by the Lord Ordinary in the present case.

[20] In our view the approved approach is in accordance with the statutory language. It is not inconsistent with "realism" nor productive of injustice since the amount of any capital sum ordered to be paid does not depend exclusively on the valuation of matrimonial property at the relevant date but is tempered also by the statutory requirements for fair sharing of that property (including the incidence of any "special circumstances") and for any award (when ultimately made) to be reasonable having regard to the resources of the parties. We do not regard anything said in Wallis v Wallis (in the context of a case concerning a change in the value of property between the relevant date and the date of divorce) as precluding the approach which we favour. However, as we have at this stage heard no argument on how and, if so, to what effect such tempering requirements might, in the particular circumstances of this case, affect the capital sum to be awarded, we express no view at this time about any such effect. Nor are we persuaded that the approach which we favour will lead to undue practical difficulties. While it may be that in some cases valuations of property will be required as at more than one point of time (though no further valuation will be required if the property has in the meantime been realised for an ascertainable price), the approach urged by the husband would have the effect that in every case where a capital sum or a transfer of property was in issue, at least one notional capital gains tax computation would require to be undertaken.

[21] The cited decisions from the sheriff court were concerned not with capital gains tax but with other contingent liabilities. However, insofar as observations in Mackin v Mackin and Lawson v Lawson tend to suggest that personal liabilities of the spouse which remain contingent at the relevant date (as distinct from burdens on the property which reduce its value to a prospective purchaser) fall to be taken into account in valuing matrimonial property as at that date, they were, in our view, in error. The difference in Lawson v Lawson between the mortgage debt and the local authority "clawback" was that the former could be properly be regarded as a debt which was "outstanding" at that date, the latter could not. In Stuart v Stuart issue appears to have been joined on whether the discount which was contingently repayable to the local corporation was or was not an "outstanding" debt. The Sheriff Principal correctly held that it was not. No argument appears to have been advanced that the property itself should be valued net of the discount. Any such argument would, for the reasons expressed above, have been, in our view, unsound.

[22] In the whole circumstances we are satisfied that the Lord Ordinary, in determining the net value of the matrimonial property as at the relevant date, erred in bringing into account by way of deduction the capital gains tax notionally payable by the husband on the hypothesis of a disposal by him as at that date of his share portfolio and of his business interests. We shall continue this reclaiming motion to a date to be fixed for resolution of the outstanding issues, including those arising on the cross appeal.